Securities regulatory reform, mutual fund trading abuses, industry ethics, research independence, corporate governance, and product trends are expected to be the big stories for the investment business in 2004, according to a survey of the Canadian chapters of the Association for Investment Management and Research.
AIMR hosted a webcast today, allowing each of its regions to give their views on the likely topics.
The online discussion also touched on other issues, including the debate over securities regulation, with a couple of chapters coming out in favour of a single national regulator. The key benefit, they said, would be to relieve the burden of multiple of regulators which is particularly tough on small firms. While a national regulator appears to be favoured, Alan Fustey, president of the Winnipeg Society of Financial Analysts, also noted that a passport model would be an improvement, too.
Fustey also highlighted the importance of improving industry ethics. A sentiment echoed by Stefan Cowell, past president, of the Edmonton Society of Financial Analysts.
Beth Hamilton-Keen, past president of the Calgary Society of Financial Analysts, indicated that one of the effects of these ethical lapses is continued investor distrust of the market and market players. She said she expects this feeling to drive greater interest in alternative investments, such as hedge funds, private equity, income trusts and others. “It will need to be a focus of those in the industry to educate investors, not simply sell the most popular thing or the asset that has the best historical return.”
Michèle Holland, president of the Montreal Society of Financial Analysts, a portfolio manager with RBC Dominion Securities Inc., focused on the impact of historically low interest rates on retail investor portfolios. She noted many investors have gone searching for higher yields in this low-rate environment, pushing them into products that are generally lower quality, such as income trusts and lower-quality corporate bonds.
In 2004, RBC is expecting to see rates moving higher by mid-year. Holland says that under these conditions it will be tricky, yet critical, to find a balance between quality and yield. She said it will be a very challenging year for income-focused investors, and that many don’t see it coming.
John Lindsay, president of the Ottawa chapter, focused on MERs. He anticipates growing pressure to reduce fees and greater service from money managers, noting that investment counseling firms are restructuring their fees to attract former discount brokerage clients that are now looking for advice.
Also on the product side, Chris Johnson, president of the Saskatchewan Society of Financial Analysts, highlighted the growing importance of buyout funds in the capital markets. He suggested that more, big Canadian companies will be bought by U.S. funds. And, he expects to see these valuations going higher.
The Toronto Society of Financial Analysts, headed by Margaret Franklin, is focusing on research independence. She suggested that a key question will be ensuring the usefulness and objectivity of research. Several chapters also indicated the growing importance of making disclosure meaningful by making it more readable and accessible.